24 Jun 2009

How Drought Promotes Entrepreneurship

A guest post by J. David Foster*

We all know the impact of rainfall on crop production and we know, or think we know, the impact of rainfall on economic growth but how many even think about the impact of rainfall on entrepreneurship? Although sociologist Max Weber has long been famous for his theories on “The Protestant Ethic and the Spirit of Capitalism”, based on my observations in India, I believe that differential patterns of rainfall have often had far more impact on “the spirit of capitalism” than any differential religious persuasion.

First, by way of background, I want to give you a little information on the nation of India where I have worked as an environmental advisor for the past 5 years and have been visiting since the early 70s. Although in most respects India is a remarkably unified and stable country, for outsiders it is often useful to think of India as analogous to Europe with an even greater variety of languages, ethnic groups, customs, cultures and cuisines. There is as much difference (both geographically and culturally), for example, between Kashmir (in the North of India) and Tamil Nadu (In the South) as there is between Norway and Greece.

One of the most striking geographic variations within India is the difference in rainfall patterns. In the semi arid tropics of Andhra Pradesh (South Central India), where I live for example, serious droughts can be expected to occur about once in 7 to 10 years. By contrast, in more arid Rajasthan and parts of Gujarat droughts will occur every 3 to 4 years. And at the other extreme, in Kerala (blessed with two monsoons per year) droughts of any kind are extremely rare, no more frequent than once in 20 years.

The question we want to pursue is: What may have been the cultural impact of those variations in rainfall? Now, let’s think about what happens to people (or at least those who prosper) in the most drought prone regions:
  • They develop off-farm options for employment (handicrafts, trade & manufacturing) to enable them to survive during those seasonal or even year long droughts,

  • They develop savings habits initially designed to tide them through the droughts (the obverse of saving for a “rainy” day) that can later be used to raise capital to finance a variety of business ventures, and

  • Those who fail to develop these aptitudes (either through lack of discipline, ill health or bad luck) often wind up having to sell their lands to the most successful ones and frequently wind up working for large landowners.
Now looking back to the cultural and entrepreneurial patterns across India it is unmistakable that the most drought prone states, like Rajasthan and Gujarat, produce by far the most Capitalists while the well watered states like Kerala and West Bengal produce the most Communists. [Kerala and West Bengal have regularly voted Communist for at least the last 20 years and are the only states in India to have done so.] What is even more remarkable is that it is the rainfall/drought variable that appears to dominate regardless of variation in religion, ethnic group, or differential exposure to foreign trade or colonialism.

Although not blessed with great ports or other natural resources, drought prone Rajasthan has produced more billionaires (including the owner of the world’s largest steel company) than any other area of the country, Neighboring Gujarat (also drought prone but not quite to the extent that Rajasthan is) is widely known for exporting successful small businessmen to East Africa, North America (especially motels and sandwich shops) and the UK. Interestingly, in well watered West Bengal where the British established an early capital of its colonial empire, the native Bengali people excelled as civil servants but the most successful businessmen were ethnic Mewari, originally from drought prone Rajasthan.

It is the Southwestern state of Kerala which benefits from both the Southwest and Southeast monsoons; however, that provides the greatest contrast to arid Rajasthan. Despite having the highest literacy rate and best health care of any state in India, Kerala has relatively few successful businessmen. Kerala has also welcomed European, Arabic and Chinese traders for centuries and is home to Muslims, Hindus, Jews and Christians. {Many people even claim descent from early Christians converted by the apostle Thomas.} Kerala is widely known for its food and spices, its beautiful scenery and tourism, its Doctors, Nurses and labor unions but not for its entrepreneurs. With few exceptions, Kerala is largely known as a region of small farms and relatively even income distribution. In fact, any conspicuously large home is most likely the consequence of remittances sent back from a family member working abroad rather than from domestic business success.

Finally, although this theory regarding the role of adversity in promoting entrepreneurship is based primarily on observations of drought in India, it is fully consistent with observations regarding the long recognized entrepreneurial role of ethnic Chinese people throughout Southeast Asia. Whether in Thailand, Malaysia, Indonesia or the Philippines; there is a common aphorism that: “if there is a store in town, there are probably people of Chinese origin that run it.” The generally accepted theory behind this observation is that ethnic Chinese arriving in tropical rainforests from colder, drier, more seasonally affected regions of China had a cultural advantage over their tropical counterparts when it came to saving, investing and other entrepreneurial activities. If “every cloud has a silver lining”, maybe occasional droughts have a silver lining as well.

For further information on droughts in India, check out: Droughts and Integrated Water Resource Management in South Asia: Issues and Alternatives by Jasveen Jairath and/or my review of it.
* Environmental Advisor, Centre for Energy, Environment, Urban Governance and Infrastructure Development, Administrative Staff College of India. Email: dafoster@aol.com